Jabil: A Rising Star in the AI Data Center Market

Contract electronics manufacturer Jabil has raised its full-year guidance, driven by an AI-fueled acceleration in its growth. The company stands to gain substantially from the AI server market's impressive growth in the next few years. Jabil's improving earnings growth profile and attractive valuation make the stock an attractive bet right now.

Jabil may not be a household name for investors looking to capitalize on the rapid adoption of artificial intelligence (AI), but a closer look at the company's recent results will make it clear that it is benefiting big-time from this technology. Jabil serves multiple industries, ranging from automotive to semiconductor equipment to networking to data centers. The company is now witnessing a nice acceleration in growth thanks to the fast-growing deployment of AI data center hardware, which is leading to an increase in demand for the company's cloud data center-focused offerings such as rack integration services.

Jabil delivered solid quarterly results recently and also raised its full-year guidance. The company's revenue increased by 16% from the year-ago period, while earnings shot up 35% year over year. Jabil has raised its full-year revenue forecast to $29 billion from the prior estimate of $27.9 billion. It now expects fiscal 2025 earnings to land at $9.33 per share from the earlier expectation of $8.95 per share.

On the latest earnings conference call, Jabil management remarked that it is witnessing an increase in demand for complex server and rack integration, advanced networking, innovative power, and cooling solutions on account of the growing deployment of AI data centers. CEO Mike Dastoor said AI infrastructure demand is accelerating. The company estimates its AI revenue is on track to jump by 50% this year to $8.5 billion. AI, therefore, is set to account for almost 30% of Jabil's top line in fiscal 2025.

Not surprisingly, the company plans to invest $500 million in shoring up its cloud and AI data center infrastructure manufacturing services in the long run. This money will be spent on bolstering its ability to design and manufacture complex AI server racks that can meet the growing power requirements and liquid-cooling needs in data centers. Importantly, the AI server market is expected to grow at an annual pace of 34% through 2030, so it won't be surprising to see AI moving the needle in a bigger way for the company.

Jabil's strategic investments and strong performance in the AI sector make it an attractive stock for investors looking to capitalize on the AI revolution. The company's diversified portfolio and robust financials position it well to continue benefiting from the growing demand for AI data center solutions.